Forbes India 15th Anniversary Special

Inside Carl Daikeler's flab-burning empire

The infomercial king nearly made himself a billionaire by selling DVDs and health shakes

Published: May 25, 2018 06:03:17 PM IST
Updated: May 25, 2018 06:11:56 PM IST

Inside Carl Daikeler's flab-burning empireCarl Daikeler is now worth an estimated $660 million
Image: Ethan Pines for Forbes

As the air-conditioning hums in a squat, windowless warehouse on a desolate side street in Van Nuys, California, Carl Daikeler strolls onto the set of a workout-video shoot and informs the spandex-clad cast that it’s time for his social media ritual. Everyone quiets down. He holds his iPhone up high, forces a smile and begins to rave about 80 Day Obsession, a new workout programme about to be filmed in real time. He stops and grimaces at a reporter after a few failed takes: “I’d be cursing if you weren’t here.”

A couple of more tries and he fires off several minutes of footage to his 130,000 Instagram followers. We head into a dimly-lit room with couches and a big-screen TV monitor to watch the lithe celebrity trainer Autumn Calabrese taping a choreographed workout. At 10 am sharp, an assistant hands Daikeler a plastic tumbler of Beachbody’s flagship product, a weight-loss shake called Shakeology. He has gulped down this vegan chocolate-flavoured concoction—cocoa powder, chia, quinoa, rose hip and some 60 other ingredients—at the same time, every day, for the past decade. He posts another quick video of himself drinking the brown sludge, his voice rising an octave as he tells viewers he’s logging Day 289 of the 365-day challenge urging other Shakeology drinkers to stick to the regimen.

Daikeler, at a trim 5-foot-8, is leading by example. As co-founder and CEO of Beachbody, he’s at the top of a modern-day multilevel marketing machine with more than 340,000 independent “coaches,” who sell workout videos, shakes and supplements to weight-loss hopefuls via social media. The playbook goes something like this: Lose weight with Beachbody by doing the at-home workouts and drinking the shakes. Share it on social media. Use your story to sell products and recruit new customers and coaches. Repeat.

“Credible success stories are the backbone of the company,” says Daikeler, 54, who owes his six-pack abs to Beachbody workouts. He considers himself customer No 1 and tells anyone who will listen that he hates working out and can’t stand vegetables. The story makes sense when you consider his mission is to sell to a nation of couch potatoes.

The way Daikeler sees it, he’s hit on a scalable solution to the fat epidemic afflicting approximately 175 million overweight and obese adults in the United States. Forget the gym—you’ll never go. Instead, shed those pounds in the comfort of your own living room, then become a cheerleader for others—all while making a percentage of sales to regular customers, plus a slice of any new coach’s sales that you bring on. In other words, join Beachbody to lose weight and get rich in the process. Daikeler himself is now worth an estimated $660 million, based on his majority ownership of the privately-held company, which has attracted 28 million dieters since its 1998 inception and had revenue of $1 billion in 2017. “The fact that there still hasn’t been a solution to obesity is a stunning opportunity,” says Daikeler, dismissing competitors like Weight Watchers and Nutrisystem. “It’s an opportunity that is just shockingly available to me.”

Back at the company’s sunlit Santa Monica headquarters, Daikeler parks his Tesla Model S and heads into his office, passing a wall of handwritten inspirational sayings (‘You can’t predict the future. But you can CREATE it!’). Daikeler loves this stuff. He is, after all, in the motivation business. “Probably the coolest part about Carl is he does lead with his heart. He’s about empowering other people,” says Amber Kuiper, a top-tier ‘nine-star diamond’ coach from Woodbury, Minnesota.

Daikeler needed motivation as much as anyone else. Growing up outside Philadelphia, he wasn’t much for healthy eating (his afterschool routine involved devouring a stack of Oreos while watching The Flintstones) or athletics (he got cut from his high-school basketball team on the first day). Not much has changed. He’s still far more interested in the lights-camera-action excitement of entertainment than in pumping iron at the gym. As a kid, he helped with the sounds and lights at a theatre his family co-owned, the Bucks County Playhouse. Later, in high school, he sometimes slept in the school’s TV studio after working late into the night, to the detriment of his grades and SAT scores.

When Daikeler was roundly rejected by every college he applied to, he drove up to Ithaca College in upstate New York with a buddy and talked a dean of admissions into meeting with him later that day. After enjoying a three-beer lunch with his friend, he managed to persuade the dean to change his rejection into an acceptance. He went on to graduate with a bachelor’s degree in corporate organisational media in 1986 and landed a job producing the halftime shows for nationally-televised football games. But entertainment for entertainment’s sake wasn’t rewarding enough for him, so in 1987 he decided to get into infomercials, where success is measured solely in dollars.

Daikeler’s first fitness infomercial was for Lifeline Gym, essentially a gym in a bag. In 1994 he co-founded TelAmerica Media with Lance Funston and came up with the idea for the ‘:08 Min Abs’ workout video. He thought it had the same ring to it as Greg Smithey’s hit workout video, ‘Buns of Steel’, from the 80s. Daikeler ended up selling 2 million copies. “What I learned was that solving my own problem—that I don’t like to work out and I eat like a second-grader—was a scalable opportunity,” he says.

Inside Carl Daikeler's flab-burning empire

However, he was hardly the first to create a workout video. Jane Fonda had been stepping and stretching for years (see box), and Daikeler’s business partner didn’t want to double down on health and fitness. So Daikeler decided to sell his position in the company and plot his next move while testing new product ideas at Guthy-Renker, an infomercial powerhouse in El Segundo, California. For the next two years he worked on a telephone-based dating service and a Lasik referral service, and then in 1998 he left to start Beachbody with Guthy-Renker co-worker Jon Congdon, armed with $500,000 from angel investors. The idea was to test five products and see which stuck.

The natural place to start was in health and fitness. Daikeler tapped celebrity trainer Tony Horton (clients: Bruce Springsteen, Shirley MacLaine, Billy Idol) for a series of eight-minute workouts dubbed ‘Great Body Guaranteed’. The experiment worked, and they decided to run with it. Unfortunately, the website was already taken. On the way home one day Daikeler spotted a billboard for Sandals beach resort, and the name Beachbody came into his head. “I liked the name, and we were able to get,” he says.

Beachbody’s first blockbuster programme was P90X, a three-month intensive boot camp that has attracted fans like Paul Ryan, Michelle Obama and Sheryl Crow. At first Daikeler and Congdon couldn’t afford to hire celebrities, so they marketed their workout regimens by showcasing their own results. Eventually, they turned to customers for success stories and packed their infomercials with as many before-and-after pictures as they could. Then they added America’s Funniest Home Videos-style footage of customers working out at home. The more wilting plants or cats in the background, the less likely someone thinks it’s a fake, says Daikeler.

“The customer has always sort of been our celebrity,” Daikeler says. While most infomercials peddled gimmicky exercise equipment like the ThighMaster, Daikeler was selling something stickier than a one-off purchase. He was selling self-esteem. But the ultimate task was getting people to stick with their health-and-fitness goals. So, in 2007, he turned to Avon and Amway for inspiration and put customers in charge of selling workout DVDs, which had the added benefit of keeping them exercising, since no one buys a workout video from a fat person.

If the workout videos got people in the door and the coaches acted as the glue that held it all together, the real moneymaker was Beachbody’s shakes. In 2007, Daikeler tapped his third wife, Isabelle, a kinesiologist certified in “medicine ball training,” to co-develop Shakeology. The low-calorie liquid is marketed as “a daily dose of dense nutrition” that is packed with “superfoods” from around the world. The price tag: $130 for a month’s supply of powder, with much of that cash flowing straight to Beachbody’s bottom line.

After years of boasting that Shakeology prevented mental decline, slowed the ageing process, removed toxins and even helped prevent heart disease and cancer, Beachbody has been barred by the state of California from making claims that are not backed by science

Of course, for this vision to work, coaches need to expand their networks rapidly. Everyone who signs up with Beachbody is invited to join an accountability group, where participants follow a workout plan and log their exercise and Shakeology intake into an app. Coaches post words of encouragement—then urge others to become coaches themselves. “Basically from day one, you’re being pushed toward the network marketing opportunity,” says Heather Hanson, one of Beachbody’s first employees, who worked with Daikeler at Guthy-Renker. “It’s brilliant. Beachbody gets its hooks into you immediately.”

When Melanie Mitro joined Beachbody in 2011, she had just given birth to two boys in two years and was trying to lose some baby weight. After she posted on Facebook about subsisting largely on celery, a friend reached out to her and invited her to join Beachbody. She borrowed an Insanity workout DVD from a neighbour, lost 30 pounds in six months and was hooked. She signed up as a coach right away to help other new moms.

Now at the ‘15-star diamond’ level, she’s Beachbody’s top coach, making over $2 million a year. Thanks to Beachbody, she’s paid off the mortgage on her suburban Pittsburgh McMansion and takes dream vacations each year to places like Turks and Caicos and ­Bora-Bora. Her husband, Matt, quit his corporate gig at Heinz to work full-time for his wife. From her spacious home office, filled with flowers, photos and scented candles, Mitro, blonde and blue-eyed with Stepford-wife good looks, spends her days tending to her blog, her podcast (‘Women Inspiring Women’) and other social media platforms in an effort to motivate her team. “Ninety-nine percent of my business is social media,” says Mitro, 35.

The rise in popularity of Facebook, Instagram and YouTube has been a boon to Beachbody and coaches like Mitro. Beachbody’s first rule of thumb is to be a product of the product: Do the daily workouts, drink the shakes and brag about your results. Search for Beachbody online and you will find endless pages full of daily triumphs (workout selfies, new Shakeology recipes) and struggles (what to eat while travelling, a weak-moment cookie binge). There are also tearful accounts of suicide attempts, eating disorders and drug addictions, often concluding with before-and-after images and chronicles of how Beachbody changed their lives. This is all in service of the second rule of thumb: Gain a following and invite people to join Beachbody.

Mitro, of course, is the exception. In 2016, the average Beachbody coach paycheque was $3,233, with half of coaches making no money at all, according to an income disclosure statement. Also, coach pay doesn’t include expenses. To get started, coaches pay $40 to sign up and then a $16 monthly fee, which provides, among other things, a personalised ecommerce page. This gives them the right to make a 25 percent commission on sales of workout videos, Shakeology drinks and supplements to retail customers. The real riches, however, come from bringing on new coaches, because coaches earn a piece of every product their network sells. Mitro, for example, has 20,000 coaches contributing to her income, though she has personally sponsored only about 700 of them.

Since each coach’s earnings depend on those below them on the pyramid, the pressure to expand your network’s sales is intense, and struggling coaches speak of being dropped by their higher-ups if they fail to perform. If coaches are confronted with a medical or family emergency, and need to put Beachbody aside, they run the risk of losing their status and having to restart their entire business from scratch. “The blame game is inherent in the programme: If you do what we tell you, you’ll be rich. If you don’t, you won’t. That is the deception, of course,” says Jon Taylor, a PhD who has studied dozens of pyramid organisations and is the author of Multi-Level Marketing Unmasked.

In 2015, Daikeler ignored his board’s concerns and began offering the entire library of Beachbody workout DVDs, a $7,000 value, for just $99 a year via a Netflix-like streaming service called Beachbody on Demand. While turnover in any multilevel-marketing organisation is not unusual, this decision prompted a mass exodus because it undermined a critical driver in Beachbody’s successful formula: Keep the new commission-generating products coming. Last year sales declined by nearly 25 percent. His army of coach evangelists is shrinking. Today Daikeler has some 340,000 coaches, but that’s down from 450,000 in 2016.

Listen to former elite coach Lindsey Westbrook. After seeing her $300,000 annual income drop by half, she quit in 2017 to sell “premium” wine in another pyramid organisation, Direct ­Cellars, and has since moved on to Vasayo, a multilevel marketing company hawking wellness products. “When Beachbody on Demand came around,” she says, “people were able to get a free trial and an all-access annual pass. You’re no longer making any additional income from people ordering DVDs. And without people ordering DVDs throughout the year, they weren’t purchasing Shakeology, either.”

According to Daikeler, abandoning DVDs in favour of streaming subscriptions was a business necessity. It also gave Beachbody headquarters a direct communication channel to its millions of customers. In light of the recent sales slump, Daikeler’s message is to be even more relentless. He continues to instruct coaches not to take no for an answer and to push back on potential customers who say they’re not interested. Daikeler told one woman who complained about the price of Shakeology to take a look at her spending and assess her priorities. After all, Beachbody coaches aren’t just selling exercise and frosty drinks; they’re selling a healthier lifestyle and self-confidence. Coaches are advised to reach out to as many people as they can each day, which often leads them to cold-message strangers on social media. “You’ve got to take care of your wealth... This is why we say invite, invite, invite,” said Daikeler at 2016’s coach summit in Nashville. “Because if you only invite, you are screwed.”

Yet coach compensation has suffered as the company’s product focus shifted from selling DVDs to selling shakes. Shakeology subscriptions, at $130 a month, now bring in two thirds of the company’s revenue. But that too is under pressure: In 2017, following an investigation by the city attorney in Santa Monica, the company reached a $3.6 million settlement in which it agreed to stop making bold health claims about Shakeology, its core product.

The city of Santa Monica’s crackdown has dealt a body blow to Daikeler’s six-pack business model for growth. After years of boasting that Shakeology prevented mental decline, slowed the ageing process, removed toxins and even helped prevent heart disease and cancer, Beachbody has been barred by the state of California from making claims that are not backed by scientific evidence.

Beachbody is now essentially limited to saying its shakes curb appetite and improve energy. Since that’s not a terribly remarkable claim for any food, Daikeler and his coaches have amped up their focus on the so-called ‘superfoods’ found in every shake—ingredients like flaxseed, matcha and reishi mushroom—present in undisclosed amounts.

“There’s no legal definition of superfoods,” says Liz Applegate, a licensed nutritionist at UC Davis. “They have an exotic sound, and no one can say they’re right or wrong.”

Daikeler’s other work-around is encouraging his coaches to preach about their personal experiences drinking the shakes, which happens to be largely exempt from regulatory oversight.

Kuiper, the coach from Minnesota, boasts: “At one point all I wanted to do was take naps when my kids napped. But within four or five days I felt my energy levels impacted. I could actually get the dishes done.”

But Santa Monica’s city attorney didn’t just focus on Beachbody’s aggressive nutritional claims. The government also forced the company to revamp its auto-renewal programme, which it says wasn’t properly alerting customers when their credit card accounts were being charged and which made it exceedingly difficult to cancel subscriptions. Starting in 2018, Beachbody must gain separate consent for auto-renewals and give ample notice before charges are incurred.

Daikeler, who seems physically unable to stop selling, dismisses Beachbody’s new challenges. He has his sights set on recruiting 2 million coaches and nearly jumps out of his seat when he’s telling me about the latest workout programmes and shakes that he’s rolling out for new audiences, including kids, fitness-phobes and Spanish speakers!

Daikeler understands that it’s going to take more than a regulatory wrist slap to stop Beachbody’s momentum. Twenty years hawking products on late-night TV has taught him that the market for thinner thighs and transformational elixirs is lucrative and potentially limitless—especially when social media can help you attract legions of new coaches committed to the Sisyphean task.

(This story appears in the 08 June, 2018 issue of Forbes India. To visit our Archives, click here.)